A common planning strategy when one has left a company with a large stock position with a low cost basis is to employ Net Unrealized Appreciation (NUA).  This strategy allows for the transfer of the stock from a 401k to a taxable account with the basis in the stock taxed at ordinary income rates and the gain, the net unrealized appreciation, taxed at capital gain rates once the stock is sold.  If you are under 55, you will need to consider the impact of the 10% early withdrawal penalty on the cost basis of the stock.  The additional benefit in this strategy is the flexibility gained in the ability to liquidate the stock position overtime at the beneficial capital gain rates.

However, now according to IRS notice 2009-75 you have an additional choice to consider within the NUA strategy as you can now move the company stock to a Roth IRA.  In this case, the cost basis will be taxed at ordinary income rates, but the Net Unrealized Appreciation will be taxed at capital gain rates at the time of distribution, not when sold as in the above example.  Distributions from these accounts then would be tax free because you already paid ordinary income on the basis and capital gains on the net unrealized appreciation.

Does a Roth NUA strategy make sense?   As a practical matter, probably not.   Many who use the NUA strategy are attracted to the idea of moving money from “tied” up resource to one that allows for more flexibility at a reasonable tax hit.  Nevertheless, the argument can be made that if you have a longer time horizon, or are thinking about the move to a Roth as an estate planning strategy, then the Roth NUA strategy would be something to consider